We are turning more positive on WASEONG’s outlook, underpinned by increased order-book replenishment visibility from FPSO-related engineering and fabrication packages utilising its yard in Batam, Indonesia, as well as pipe coating jobs from Qatar and Australia. Maintain MP, albeit with higher TP of RM1.20. Subsequent 2-3 quarters could still see underwhelming earnings given the dwindling order-book before execution of new jobs kick-in.

Possible beneficiary of FPSO boom. Although mostly known for its pipe coating solutions for the oil and gas industry, WASEONG also provides engineering and fabrication services out of its facility in Batam, Indonesia. It had slipped under the investors’ radar in recent years given the lack of jobs flow. However, recent boom in the global FPSO space could see this division being revitalised, in which WASEONG possess experience in fabricating module packages used on FPSOs. We gathered that WASEONG could be among the front-runners for module packages on YINSON’s Marlim 2 FPSO (recall that YINSON was awarded the Marlim 2 FPSO contract back in mid-Oct 2019), estimated to be worth ~USD100-150m. Additionally, further FPSO wins from YINSON (currently bidding for Parque das Baleias fields in Brazil, and Pecan project in Ghana) could also place WASEONG in contention for more module packages jobs, each worth similarly at USD100-150m.

Further order-book replenishment from Qatar. Qatar Petroleum is pressing ahead with major LNG expansions in the coming years via the “North Field Expansion Project”, and is requesting bidders for coating plants facilities. Seizing the opportunity, WASEONG recently partnered with Medgulf (via a 60% joint-venture entity) – a leading Qatari oil and gas contractor, and a subsidiary of Ensrv Group. Given its unique edge and competitive advantage, we reckon WASEONG could secure up to ~USD300m worth of Qatari pipe coating job in next 12-18 months (yet to be imputed in WASEONG’s tender-book figures mentioned below).

Possible materialisation of tender-book. The aforementioned Qatar potential aside, WASEONG has a separate tender-book of ~RM5.4b – most of which are pipe-coating jobs from Australia, Europe and Africa. Among these, we see possible job awards of around ~USD100m from Australia in the coming 12 months, with WASEONG also being the front- runner for many of the job tenders.

Maintain MARKET PERFORM, but with higher TP of RM1.20 (from previously RM0.62) – pegged to 14x PER, in line with +0.5S.D. from its 3-year average (from 0.5x PBV previously at “floor” valuations), given its increasingly positive outlook. Following so, we raised our FY19E/FY20E earnings forecasts by 1%/61% to account for the increased order-book replenishment assumptions.

While its outlook is now undoubtedly much more positive than before, underpinned by the increased order-book replenishment visibility, we feel that the recent almost perpendicular jump in share price from its base could see some consolidation as earnings could still be underwhelming for the coming 2-3 quarters given its dwindling order- book before execution of new jobs kick in. Re-rating catalysts include successful materialisation of new jobs, on top of stronger earnings growth delivery.

Risks to our call include: (i) sooner-than-expected order-book or tender-book replenishment, (ii) stronger-than-expected order book recognition, and (iii) better-than-expected margins.

Source: Kenanga Research - 30 Oct 2019